Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5102234 | The North American Journal of Economics and Finance | 2017 | 8 Pages |
Abstract
The well-known habit model of Campbell and Cochrane (1999) specifies a process for the 'surplus ratio'-the excess of consumption over habit, relative to consumption-rather than an evolution for the habit stock. This paper shows that Campbell-Cochrane preferences can be accommodated in a Markov chain framework à la Mehra and Prescott (1985) and mapped into an equivalent state-dependent form of the sort studied by Melino and Yang (2003). The equivalence sheds light on the workings of Campbell-Cochrane preferences and the plausibility of upcounting in Melino and Yang's framework. The result may also have some pedagogical value.
Related Topics
Social Sciences and Humanities
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Economics and Econometrics
Authors
Jim Dolmas,